Tenth Circuit Dismisses Appeal of Small Tax Case Where Taxpayer Was Only Seeking Review of Tax Court Procedural Rulings

We welcome back frequent guest blogger Carl Smith who brings news that the Tenth Circuit sees no path to appeal a Tax Court case with the small tax case designation even when the cases is dismissed for lack of jurisdiction. So, the Tax Court has enough jurisdiction to accept the designation of a case as a small case but not enough to actually decide the case. This is big lump of coal in Ms. Vu’s stocking. Tomorrow, we hope to spread some tax procedure holiday cheer with a discussion of yesterday’s Tax Court decision in Graev and the orders that followed it. Keith

I will keep this short, since there have already been three prior blog posts, see here, here, and here, on the case of Vu v. Commissioner, T.C. Summary Op. 2016-75. The last post was concerned with arguments raised by the parties about whether the Tenth Circuit could review procedural rulings in this small tax case. On December 18, 2017, the Tenth Circuit issued an order dismissing the appeal for lack of appellate jurisdiction.

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Keith and I represented Ms. Vu, and argued that the Tax Court’s dismissal of her case for lack of jurisdiction as untimely was an erroneous procedural ruling that could be reviewed by an appellate court, notwithstanding the usual prohibition at section 7463(b) on review of “decisions” of the Tax Court in small tax cases. We pointed out appellate case law under section 7429(f) (which contains a similar prohibition on appellate review of certain jeopardy assessment determinations) holding that the prohibition on review did not apply to procedural rulings, such as rulings dismissing a case for lack of jurisdiction. We thought there should be a similar exception for section 7463(b).

At the Tax Court in the Vu case, Keith and I had also asked Judge Ashford, pursuant to section 7463(d), to remove the small tax case designation so an appeal would be possible and precedent could be created in the Tenth Circuit on the underlying innocent spouse jurisdictional issue. The judge refused to remove the small tax case designation. Her action was, as best we could tell, a unique refusal to a taxpayer since orders have been searchable on the Tax Court’s website (mid-2011). So, we also argued to the Tenth Circuit that Judge Ashford abused her discretion by not granting the taxpayer’s timely request to remove the small tax case designation and that the appellate court could review that ruling on our motion. No court has ever considered whether it has appellate jurisdiction to review the denial of a party’s motion to remove a small tax case designation. In response, the DOJ took the surprising view that the only authority the Tax Court had under section 7463(d) to remove a small tax case designation was where the court belatedly discovered that the amount in dispute threshold ($50,000) had been exceeded. The Vu case concededly did not involve more than $50,000.

In an unpublished order, the Tenth Circuit did not address most of the parties’ arguments. Instead, the Tenth Circuit wrote:

In her response to the jurisdictional show cause order, Ms. Vu recognizes that small tax cases are not ordinarily appealable under I.R.C. § 7463(b), but argues that “[t]he prohibition on appellate review does not apply in this case, since Ms. Vu is not seeking merits review, but review of an erroneous procedural ruling of the Tax Court that precluded the Tax Court from deciding the case on the merits (i.e., a ruling that it lacked jurisdiction.” The court finds this to be a distinction without a difference: the Tax Court’s decision to dismiss a small tax case on jurisdictional grounds is nonetheless a “decision” rendered in a small tax case and, as such, “shall not be reviewed in any other court.” See I.R.C. § 7463(b); see also Rayle v. C.I.R., 594 F. App’x 305, 307 (7th Cir. 2014) (unpublished) (holding that “[t]he Tax Court’s dismissal of a case for lack of jurisdiction is a ‘decision’” and dismissing appeal of that decision for lack of appellate jurisdiction); Edge v. C.I.R., 552 F. App’x 255, 255 (4th Cir. 2014) (unpublished) (same). Accordingly, this court is without jurisdiction to hear Ms. Vu’s appeal.

The Tenth Circuit’s order did not mention Ms. Vu’s arguments under section 7429(f) for an analogous exception for procedural rulings.

The Tenth Circuit also did not discuss the separate issue of whether a denied motion to remove a small tax case designation is ever appealable. Nor did it discuss the DOJ’s position that removal under section 7463(d) was only permitted when it was discovered that the small tax case amount in dispute threshold was exceeded.

Observations

Keith and I were aware that in three unpublished opinions (including Rayle and Edge), courts of appeal had declined to review Tax Court dismissals of small tax cases for lack of jurisdiction. Still, it was not clear to us that any of those appellate court opinions seriously considered treating Tax Court procedural rulings on a different footing from merits rulings. Further, none of those opinions mentioned section 7429(f).

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Comments

The court’s order mistakenly considers this case to be a small tax case. But this case was decided on a motion to dismiss — the case never went to trial. Rule 171(d) provides that the taxpayer is only considered to have exercised his or her option to elect small tax case status, and the Tax Court to have concurred, if the court does not issue an order removing small case designation before trial. Because this case never went to trial, it was not, in fact, a small tax case.

6. What if I chose, and the Tax Court granted me, S case status but I changed my mind and want my case heard as a regular case? How do I change the status of my case?

You can change from S case to regular case status. You need to make the choice, however, before the trial of your case begins. You should make the request to the Tax Court in writing and should include your name and the docket number in your request. You should send a copy of your request to the IRS attorney who filed the “Answer” to your petition. Because the Tax Court has about 15 more places of trial in S cases than in regular cases, it is possible that the place of trial might need to be changed if you change from S case to regular case status.

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Leslie Book

Keith Fogg

T. Keith Fogg is a Clinical Professor of Law at Harvard Law School where he started a tax clinic in 2015. Prior to joining the faculty at Harvard, he began his academic career at Villanova Law School in 2007 after working for over 30 years with the Office of Chief Counsel, IRS. Read More…

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